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03/26/2006

The Latest French Riots--Posner

There is a considerable irony in the latest French riots, which are mainly by high school, college, and university students protesting a new law that allows employers to fire employees (without cause) during their first two years of employment, if the employee is under 26 years of age. The law, which has not yet gone into effect and will not if the government caves in to the rioters and their supporters (including public-employee unions, especially in transportation), is a response in part to a previous round of more serious riots, by French Muslims of mainly North African origin protesting their economic situation, which includes an astronomical unemployment rate particularly among the young. (Becker and I blogged about those riots on November 13 of last year.) The overall unemployment rate of the under-26 population in France is in excess of 20 percent, which is greater than that of the adult population as a whole (the corresponding rate for the United States is about 10 percent). The reason is that once hired, an employee can be fired only with great difficulty. Employers are naturally reluctant to hire people, mainly young, many of whom haven‚Äôt worked before (or if they have, it can only have been for a short time), because the likelihood that they will do a good job is difficult to assess unless they have a record of prior employment.
The youth unemployment rate is even higher among Muslims in France, and they are among the rioters, which makes no sense in terms of their economic self-interest. That ethnic French youth should be rioting against a law that would help the Muslims is perhaps surprising given the liberal ideology of most young people in France, yet may be, I will suggest, an expression of rational self-interest.
The youth unemployment rate is largely an artefact of French law. If employers were free to fire employees without cause, as under "employment at will," the most common form of employment contract in the U.S. private sector, they would be much more willing to take a chance on hiring workers without a record of satisfactory performance. Tenuring just-hired workers may be good for those people lucky enough to land a job (though average wages will decline because the expected productivity of a worker will be lower than if he could be fired easily), but like other labor protections it is bad for the marginal workers, such as the Muslims who rioted the last time, and for the economy as a whole. It is part of a complex of unwise laws in Europe that are contributing to Europe‚Äôs economic stagnation.
The rioting by the non-Muslim students may be rational. For if they are the most likely to land jobs under a legal regime in which a newly hired worker cannot be fired in his or her first two years of employment, they may be harmed by the new law. This cost-benefit analysis of rioting assumes that the cost to the students of rioting is low, but it does appear to be, since apparently they are not being expelled or suspended from school. Even the widespread public support of the students may be rational, if that support is concentrated among workers who have tenured jobs and fear that if the new law, though limited to the under-26 work force, goes into effect and is successful in reducing unemployment, it will be the start of a slippery slope leading eventually to free labor markets on the U.S. and British model.
What is particularly difficult to explain from a rational-choice perspective is the widespread public condonation of riots and strikes as methods of forestalling legislative changes. If the public strongly opposes a law, it is much more efficent for that opposition to be expressed in a parliamentary vote to rescind the law than in riots and work stoppages that cause widespread inconvenience and other costs. The inference, assuming the French people are as rational and well informed as other European peoples--which seems the sensible assumption when one consider the high level of education in France, the nation‚Äôs wealth, and the many French contributions to science and culture--is that their political system is not functioning properly; and indeed that seems to be the case. Although the new law is, according to public opinion polls, opposed by 68 percent of the population, it was, of course, duly enacted by the French legislature. Although representative democracy does not automatically translate popular majorities into laws, because of the operation of interest groups and the fact that intensity of preference or aversion is not captured in simple majoritarianism, it would be unusual in the United States for a law opposed by more than two-thirds of the population to pass, though a counterexample is the impeachment of President Clinton by a Republican-dominated House of Representatives. It was opposed by about two-thirds of the U.S. population--but of course Clinton was acquitted by the Senate.
A great country can have a lousy government. (Our government is not doing so well these days.) The design of the French government may be unsound. Ordinarily in a parliamentary system, the head of the government is a member of parliament, that is, an elected official; in a presidential system, too, the head of the government is an elected official. But in France, the president, who is elected, appoints the prime minister. The current prime minister, de Villepin, has never held elective office, and this is a considerable weakness from the standpoint of ability to gauge public opinion and assuage public anxieties, and more broadly from the standpoint of perceived legitimacy in a democratic society.
France has a long history of rioting, but so do many other countries (including the United States), which have outgrown it as their governments stabilized. It seems more likely that the French propensity to riot is rooted in problems of government design than in a peculiarly French proclivity for rioting. But this is a tentative suggestion. For there do appear to be French cultural peculiarities, such as the effort to prevent changes in the French language and resistance to the use of English at academic and other conferences, and to foreign takeovers of French companies, that may be related not to the riots as such but to the intensity with which the French resist globalization and its concomitants, which include competition. The new law that has provoked the riots is designed to make labor markets slightly more competitive.

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From the outside, the muslim movement and ideology appears to call for jihad or violent opposition. One sees or hears of this in the U.S.: muslims or the nation of islam may trash a liquor store in a bad neighborhood because the liquor store preys upon people for business. Eventually, the violence becomes self-defeating and they (nation of islam) kill each other.

"Employment at will" may work well on certain spreadsheet analyses of productivity, efficiency, etc. but these fail to take into account the cost of recruiting, relocating, training, and retaining employees in a dynamic hire/fire environment.

I labored for 12 years in a stable position, with relatively low pay and little benefits, but it was satisfactory for my needs. Laid off from that job due to economic upheaval resulting from 9-11... I am now in the more typical "employment at will" market, where average turnover seems to run about 3 years. Salaries and benefits have to be higher to compete for the churning employees, while the employees themselves need the higher salaries and benefits as a hedge against unexpected layoffs.

On a straight economic scale, this may look like win-win, until you consider the cost of relocating families across the country to take advantage of the market - then it starts to bring to mind the term "Koyanisquatzi" - a crazy, unsustainable way of life. Security isn't available anywhere, so stability is sacrificed in the name of getting top dollar - tell me who is benefiting from this arranngement (besides the moving companies)?

Judge Posner,
France may have an illustrious past and that may give it a benchmark level from which to fall,but it doesn't adress the dynamism (or lack of) in current French society.To illustrate from classical/Newtonian mechanics a body in motion may have a higher velocity than an object which has a higher acceleration but has not been underway as long.Use France and India for these two examples.Your co-host can attest to this better than I,but my feeling is France is living off its capital;financial,moral and intellectual.
Still ,this may be an opportunty for some.Rhett Butler remarked,"There's money to be made in empire building and in empire wrecking."

At-will employment is problematic because it protects the interests of the employer only and seems to completely ingore the interests of the employees. Most of us, and our parents, spend a lot of money, often borrowed money, on education which is required for most jobs today. When one is terminated from a job, some of that money is lost. Why should one be fired from a job and hence lose the money invested on education without being given a reason and an opportunity to challenge the reason? Plus, being fired from a job carries with it a terrible stigma. It seems to me that the French youth, who are in the process of making that very investment, have every reason to protest the new law. They chose to riot, but the riot came after peaceful protests that got no meaningful response from the French government.

But is this deregulation? For the sake of simplicity, I?ll divide the market into a business, or entrepreneurial, market (a market for business activities), and a labor market.

Suppose both markets are heavily regulated ? as they are in France. A deregulation of the labor market would cause nothing but lower wages, since the business market remains heavily regulated, and therefore the number of buyers of labor is kept low.

On the other hand, a deregulation of the business market would create a freer and more opportunistic business environment. This, in turn, would generate strong pressures to deregulate the labor market, a pressure generated both by businesses, and by labor.

Simply put, you cannot have a deregulated business market and a regulated labor market ? but you can have a regulated business market and a deregulated labor market. The first scenario disfavors everybody; the second one disfavors only the labor, to the benefit of those businesses allowed by the Government to exist.

The first conclusion of my argument is that student riots in France are ambiguous. We can?t tell whether the students are rent seekers whose rents are under threat (as both Becker and Posner suggest), or if they favor free market. Under the circumstances, both types of students may unite under the same banner against the Government.

The second conclusion is that the French Government clearly began deregulation from the wrong end ? and this move is also politically ambiguous.

The riots are a symptom of a disease. Until France deregulates and lowers taxes, it's overly statist economy will continue to suffer. The model for France--and other EU nations--is Ireland. The "Celtic Tiger" slashed both tax rates and regulation. The result was a demonstrable economic prosperity. France would be wise to take heed but would the famed Gallic hauteur allow such changes?

It seems to me that you have to factor into the equation the ability of dishonest or incompetent managers who abuse at-will employment for short-term or personal gains. This cost may have escalated recently - Worldcom, Enron and probably numerous others we do not see in the news. There is a very big adverse selection problem - good and competent employees were terminated, and scoundrels and dolts were rewarded. Don't think too much or ask too many questions. And don't smile at the boss the wrong way.

...a new law that allows employers to fire employees (without cause) during their first two years of employment, if the employee is under 26 years of age.If this law really makes a distinction based on age then the government should apply a principle of independent multiple consent. In particular, any time a law treats people differently on the basis of something that they have no control over - race, ethnicity, place of birth, nationality of parents at time of birth or, in this case, age, then each group created by this distinction should have the power reject this distinction separately.For example, a law that specified ethnic profiling for airport security would be OK as long as the majority of people in both the targetted ethnic group and the non-targetted ethnic group approved the ethnic distinction separately. If, however, the majority in either ethnic group (targeted/non-targeted for extra screening) opposed the distinction then the law would have to treat both ethnic group equally.Applying this principle to the law mentioned by Posner, the law should only be able to make a distinction based on age if both the majority of people under 26 and the majority of people over 26 approve of this distinction separately.

You are correct to note the not-so-subtle irony in the recent student riots in France. As I wrote to Becker, the riots are further empirical evidence (if any were needed) that people are self-interested actors and that once an entitlement is granted by the state, it is almost impossible for it to take it away.

It's one thing to make conditions on new workers - here we do it with long term, successful workers. In the USA when a company reorganizes under bankruptcy protection, the pension benefit obligation is restructured too. The contract between the stakeholders and labor is seen in a new light. The labor has been consumed. Part of the consideration - a stream of annuity payments in retirement - has a place in line with the other creditors, and can't bargain for work that's already been done.
And as was reported in the NY Times - wages for some UAW workers have not only not been keeping pace with inflation, under a period of record productivity, they have been going down. No one said life is fair.

I certainly do not condone riots, but at least they mean one positive thing: young people in France care about politics. It has been a while since the youth in America cared deeply about any political issue. Even the public at large has a sporadic interest in politics. That is why fringe groups control the political agenda in America today. And it is why politicians can lie with impunity and get away with it. If only the "silent majority" would speak up about the issues that matter most (and I don't mean gay marriage). If only they would read newspapers, ask intelligent questions, demand accountability, and most important, vote. One can only dream..

At-will employment is problematic because it protects the interests of the employer only and seems to completely ingore the interests of the employees.

I think that it is currently possible in France for employees to quit their jobs in order to accept a better position. Yet it is difficult-to-impossible for a company to fire someone just to replace them with a better employee. The laws are already stacked very far in the favor of the employees; the only thing wrong with the new regulation is that it is so narrow in scope.

Furthermore, anyone who has ever searched for a job knows that experience is gold. Even if the new French labor law would lead to young people being employed for 23 months and then being sacked right before the deadline, that is 23 months of experience that they might have not otherwise had, which will make them more employable in the future.

The French obviously still expect an entitlement to lifelong employment at the same company, but that's patently absurd in the modern economy. Probably 99% of the protesting students make use of the Internet, but have never given a second thought to the massive employment restructing required to efficiently produce the computers, routers, applications and web content that they are current enjoying. The foolishness is mind-boggling.

Odd isn't it? The young disenfrancised rabble of the Paris suburbs riot for lack of work. The Assembly takes action to open the jobs market for these very young. Now the blue coated Gendarmes rush past with water cannons and tear gas canisters trying to subdue the Left Bank and the Latin Quarter in revolt against youth employment legislation. The smell of tear gas wafts through the streets, the Unions call for National Strikes- Ahh! must be Springtime in Paris!

One thing you can say for the French, they certainly are an independent lot and will go their own way. To hell with World and everyone else's vision of the perfect economic order. Chirac, Villenoue and the Assembly have got their hands full.

Although, its worth noting that an absence of emmigration doesn't mean French laws are efficient if either a) there is a sufficiently generous welfare state supporting the unemployed, or b) laws in neighboring countries are similarly inefficient.

A refreshing angle on the riots in France. So often we only hear about the underlying "social problems" and not enough about the underlying economics. Though I ultimately agree with your analysis of a poorly performing democratic system in France, I think there is also something to be said about the youth culture of upheavel in France. The romanticism behind a riot is longstanding in France, and is far more attractive to those in their late teens and early twenties than submitting themselves to the democratic process. While this take on the issue isn't surprising, it was, as I said before, refreshing.

From a french point of view, you have seen the point : the riots are due to a poor government design. The ability to govern is corrupted by the fact that the Executive branch gains almost all powers.

Didier well explained the way the law was passed using a confidence vote into the Executive.

I would add that the National Assembly is also elected a month after the presidential election and has almost no power to control public spendings.

Furthermore, the Judiciary, in its judicial prosecution branch, is under the control of the Executive - the Minister of Justice - enabling swift and tactical manoeuvers to avoid inquiries on many fields. This tends to ruin the legitimacy of many politicians who used to take advantage of it, especially Jacques Chirac.

This whole body tends to favor confusion and the fact that, for many frenchmen today, the only counter-power is to take to the streets to demonstrate, this very law focusing all discontent.

You could perhaps be interested in the fact that in this body of powers, french senators have even managed to pass a law allowing them to stay one more year at the Senate, their mandate reaching then 10 years ! quite a record in the West I suppose - http://www.assemblee-nationale.fr/12/dossiers/election_conseillers_2007.asp .

The case was that there were too much elections scheduled in 2007 (presidency, national assembly, and local elections).

One last thing to point out, from the french point of view, and concerning the "malaise" of the young is that Universities are on the verge to collapse : with open entrance for students, no selection and no money in the system, half of the students fail to graduate. Furthermore, for those who graduate, even in the Sorbonne, there is no job in the end and that often means going to London or elsewhere to find a job. That is, to my opinion, the main point of the issue : the incapacity of France to raise its University to a high level, letting it working in a soviet manner and allowing it to destoy half of the young who enter.

Just to resolve a mysteriously won first place -- with all due respect to market economy and its proponents, I speculate that the percentage favoring free market economy in China showed in Didier's post is likely tainted by sample selection biases. These being interviewed are likely to have been benefited from market economy. As a Chinese, I wonder how the interviewer explained to rural residents about the differences.

Dear Judge Posner,
it's just another french standpoint that appreciate your views and would like to go further on one point: legitimacy of the actual government.
Previous comments, particularly jean jacques, point the fact that exists a certain "malaise" about how politics behaved in France. The present president have been elected on a miscomprehension (82% for M. Chirac was not a wave of commitment to right but a "pis aller" against extreme-right), the present government is born after 2 serious electoral defeat and is headed by a man who never face election.

My point is that if an employment law is at stake it remains an important dimension upon the legitimacy debate: a debate that is perhaps independant from the content of the law.

I think we started off in the wrong direction by looking at this from a 'rational-choice' perspective. I think it's a social paradigm in Europe, but especially France, to see business as an imposition of power. A step in favor of government intrevention is a step towards progress; whereas, in this case, we have a step backward. It's anathema to a progressive society when business interests raise the hand of government intervention when they're so accustomed to the reverse. I don't think it has much to do with individual choices or rational justifications, or illegitimate power overriding self-interest. I think it has to do with perceived power overriding perceived autonomy. It's appropriate that this language sounds so Foucault-like in nature, both because it's so intrinsically French and because there is undeniably a complex power network at play here. French citizens as a whole probably believe that public interest supercedes economic interests. Individuals should be autonomous from the economy, and the economy should serve individuals (and collectively, the public). When that autonomy is threatened by power (the government, in this case), they themselves become a concentration of power, and it manifests itself as active, willful resistance and violence. I don't see that as rational, and I don't think it properly takes into account self-interest (rather, it's clouded by collective and public interest--the tragedy of the commons). All I see is basic power relations linked fundamentally with the expected roles of the economy and government in French society.